Wages grow at fastest rate since the pandemic, but still outstripped by inflation

Data from the Office for National Statistics (ONS) showed average regular pay, excluding bonuses, rose to an annual rate of 6.7%, up from 6.5% in the three months to November.

However real pay declined by 2.5% when adjusted for inflation, which is currently at 10.5% - just slightly lower than the record fall of 3% in the three months from April to June last year.

Wage growth in the UK’s private sector grew more quickly than the public sector, although both sectors are still well below inflation.

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Wages in the private sector grew by 7.3%, driven mainly by City bankers and accountants, versus 4.2% in the public sector.

Darren Morgan, ONS director of economic statistics, said: “Although there is still a large gap between earnings growth in the public and private sectors, this narrowed slightly in the latest period. Overall, pay, though, continues to be outstripped by rising prices.”

Jonathan Boys, senior labour market economist for the CIPD said that the gap is “deepening the cost-of-living crisis”. 

“Regular pay growth of 6.7% would normally be a welcome sight for workers but in the face of inflation running at 10.5% this increase won’t stop living standards from falling for most working people.”

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More people have moved out of economic activity, those not looking for work, driven by young people entering the workforce and the 50-64 age group.

Unemployment rose to 3.7%, close to the lowest level in almost 50 years in the three months to December.

Job vacancies continued to decline, down by 76,000 to 1.134 million, with a particularly sharp fall from the smallest employers, but still remain at historic levels.

Zero hours contracts also hit a record high of 1.13m as nervy companies stall on hiring to reduce their costs.

Morgan said: “The last quarter of 2022 saw fewer people remaining outside the labour market altogether, with some moving straight back into a job and others starting to seek work again. This meant that although employment rose again, unemployment edged up also.”

Meanwhile, the numbers of days lost to strike action reached the highest level since 1989, the figures said.
In December, 843,000 working days were lost as numerous sectors including rail staff, nurses, postal workers, ambulance staff, Border Force and civil servants walked out in ongoing disputes over pay.

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Boys said: “Vacancies, though falling, remain above one million showing demand is still strong, but the right candidates are in short supply. At just 3.7% unemployment remains low so fewer people are available and looking for work. 

“This imbalance is tilting power towards the employees, driving up pay and emboldening industrial action which rocketed to 843,000 days lost to labour disputes in December.

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“When candidates are in short supply and even bumper pay rises can’t compete with inflation, employers need to consider the whole package they offer to staff. The big increases in inactivity which we saw over the pandemic, and which continue restrict labour supply, were driven by people for whom the current world of work does not work. 

“With one in five people being economically inactive, employers need to think about these groups and design better-quality jobs. This includes flexibility in all its guises, not just home working. Flexibility is particularly valued by the over 50s, helping people get into and stay on at work.”